It’s interesting that some of his proposed bad scenarios are specially toxic to BogleHeads principles:

Bonds are for safety
No need for currency diversification away from dollar

It won’t just be a debt problem this time around, he said, but rather a story about unfunded pension and health-care obligations. To address that looming crisis, the U.S. will need to ramp up issuance of U.S. Treasuries.

We have to sell a lot of Treasury bonds, and we as Americans won’t be able to buy all those Treasury bonds,” Dalio said. That means foreign investors will have to step up. And they probably would, as long as the dollar remains strong. Otherwise, Treasury’s dollar-denominated interest payments to buyers in China, Europe and Japan will be worth less and less.

The Federal Reserve at that point will have to print more money to make up for the deficit, have to monetize more and that’ll cause a depreciation in the value of the dollar,” he said. Pressed by interviewer Erik Schatzker, he said, “You easily could have a 30 percent depreciation in the dollar through that period of time.

We have the privileged position of being able to borrow in our own currency because we have the world's leading reserve currency. We are risking that by our finances — in other words, borrowing too much

He's a gazillionaire, OK. But I've noticed that there are many of those who, despite their ability to accumulate great wealth, STILL have made many bad predictions...even a whole pattern of bad predictions. Bill Gross comes to mind, offhand. How's Dalio's track record?

maybe I'm a little dense this morning, but what unfunded pensions and health care liabilities is he talking about that would require federal intervention? (I get that many states are underfunded, but what does that have to do with US bonds?

We're not reading this the same way, or interpreting this the same way. I looked for where Dalio said not to buy US bonds, and I just can't find it. Now I can find his "All-Seasons" Portfolio that he gave to Anthony Robbins not too long ago that suggested a whopping 55% allocation to US treasury (in other words, dollar-demoninated) bonds.

Dalio is an advocate of diversified portfolios - he's about as Boglehead as it gets where that's concerned. Dalio also discourages active bets, and essentially recommends buying low-cost beta only. In practice, the only distinction I see between Dalio and the average Boglehead, is that Dalio thinks stocks are just one of many important assets classes for a portfolio, whereas the typical Boglehead views stocks as the be-all-end-all asset class that's greatly superior to other asset classes (including bonds), evidence by the typically recommended 50%+ (and usually higher) suggested weighting of stocks in a portfolio, as compared to the global portfolio weighting for stocks of under 40%.

Last edited by azanon on Thu Sep 13, 2018 9:03 am, edited 1 time in total.

We're not reading this the same way, or interpreting this the same way. I looked for where Dalio said not to buy US bonds, and I just can't find it. Now I can find his "All-Seasons" Portfolio that he gave to Anthony Robbins not too long ago that suggested a whopping 55% allocation to US treasury bonds.

Dalio is an advocate of diversified portfolios - he's about as Boglehead as it gets where that's concerned. Dalio also discourages active bets, and essentially recommends buying low-cost beta only. In practice, the only distinction I see between Dalio and the average Boglehead, is that Dalio thinks stocks are just one of many important assets classes for a portfolio, whereas the typical Boglehead views stocks as the be-all-end-all asset class that's greatly superior to other asset classes (including bonds), evidence by the typically recommended 50%+ suggested weighting of stocks in a portfolio, as compared to the global portfolio weighting of under 40%.

He is describing a potential bearish scenario for bonds and the dollar, that’s all.

"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

He's a gazillionaire, OK. But I've noticed that there are many of those who, despite their ability to accumulate great wealth, STILL have made many bad predictions...even a whole pattern of bad predictions. Bill Gross comes to mind, offhand. How's Dalio's track record?

Probably one of the best ever, check it out. H

"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

We're not reading this the same way, or interpreting this the same way. I looked for where Dalio said not to buy US bonds, and I just can't find it. Now I can find his "All-Seasons" Portfolio that he gave to Anthony Robbins not too long ago that suggested a whopping 55% allocation to US treasury bonds.

Dalio is an advocate of diversified portfolios - he's about as Boglehead as it gets where that's concerned. Dalio also discourages active bets, and essentially recommends buying low-cost beta only. In practice, the only distinction I see between Dalio and the average Boglehead, is that Dalio thinks stocks are just one of many important assets classes for a portfolio, whereas the typical Boglehead views stocks as the be-all-end-all asset class that's greatly superior to other asset classes (including bonds), evidence by the typically recommended 50%+ suggested weighting of stocks in a portfolio, as compared to the global portfolio weighting of under 40%.

He is describing a potential bearish scenario for bonds and the dollar, that’s all.

If that's the only non-boglehead thing he's doing (making predictions), then we need to get a lot more people and companies to stop doing this too. Vanguard PAS had a bond prediction yesterday too, on twitter.

One other defense for Ray - he's a student of history and is well known for his analysis of debt cycles (there's a youtube on this, in addition to his recent book). I don't agree that it's non-boglehead to try to study and learn from history, and take that into consideration with your investing. That strikes me as a wise thing to do. W. Bernstein certainly finds merit in doing so.

I guess my devil's advocate argument is that there were so many experts with great records who missed 2008. And many who got 2008 right but got the aftermath wrong. We all know that we're experiencing debt levels high by historic standards. But, as Jack Bogle says, "nobody knows nuthin' ". In this case in regard to how a debt buildup will unwind or even just reduce. My father reminds me of all the experts who expected the Depression to return after WW2 all through the 1950s.

maybe I'm a little dense this morning, but what unfunded pensions and health care liabilities is he talking about that would require federal intervention? (I get that many states are underfunded, but what does that have to do with US bonds?

Hmmmn, so you mean it is only people from other places that see the cracks in the foundation. Fun.

I guess my devil's advocate argument is that there were so many experts with great records who missed 2008. And many who got 2008 right but got the aftermath wrong. We all know that we're experiencing debt levels high by historic standards. But, as Jack Bogle says, "nobody knows nuthin' ". In this case in regard to how a debt buildup will unwind or even just reduce. My father reminds me of all the experts who expected the Depression to return after WW2 all through the 1950s.

I guess my devil's advocate argument is that there were so many experts with great records who missed 2008. And many who got 2008 right but got the aftermath wrong. We all know that we're experiencing debt levels high by historic standards. But, as Jack Bogle says, "nobody knows nuthin' ". In this case in regard to how a debt buildup will unwind or even just reduce. My father reminds me of all the experts who expected the Depression to return after WW2 all through the 1950s.

Your father was right, BTW, why didn't you believe him?

I totally did and do believe him. That the experts got it wrong. Which is why I'm a Boglehead.

I guess my devil's advocate argument is that there were so many experts with great records who missed 2008. And many who got 2008 right but got the aftermath wrong. We all know that we're experiencing debt levels high by historic standards. But, as Jack Bogle says, "nobody knows nuthin' ". In this case in regard to how a debt buildup will unwind or even just reduce. My father reminds me of all the experts who expected the Depression to return after WW2 all through the 1950s.

Your father was right, BTW, why didn't you believe him?

I totally did and do believe him. That the experts got it wrong. Which is why I'm a Boglehead.

I'm not so sure the Depression didn't return, except for the USA. Things were pretty rotten in Western Europe and Japan well into the 1950s, and in much of Eastern Europe well into the mid-1990s. There's a big difference between saying the experts don't get everything right, and the "nobody know nuthin'" school of thought.

So the dollar is supposed to depreciate? Measured against what, other developed market currencies? AFAIK, they are all more or less in the same boat as us. Maybe against emerging market currencies then? China is the largest of these and it is facing even worse demographic headwinds than the developed markets. Too many confounding variables to make any solid prediction as I see it.

He's a gazillionaire, OK. But I've noticed that there are many of those who, despite their ability to accumulate great wealth, STILL have made many bad predictions...even a whole pattern of bad predictions. Bill Gross comes to mind, offhand. How's Dalio's track record?

Some people including you I assume would ask the question straightforwardly, as in 'is this a person with any credibility?' Dalio? Yes. But the question could and IME often is asked less straightforwardly, as if the already known fact that *nobody* is always right in definitive predictions of the future eliminates the need for any consideration of the future. Again not saying you're saying that. But 'nobody knows nuthin' can definitely be misused, or its validity even challenged IMO. Jack Bogle's view is of an enduring robust American economic system and critically, a political system which eventually does the right thing before it upsets that economic system too greatly. Under that assumption it's reasonable to say it's not worth trying to predict the to and fro within that self correcting system. But such a self correcting system is not as common in human history in general, and not necessarily the future history of the US. I think it's possible now to, strictly apolitically, reasonably doubt if the US *system* has the ability to address the unsustainable fiscal path before it does serious harm.

What's individually actionable as an investor about that? That's a tough question, granted. But it's not an irrelevant question IMO. One straight forward implication would be to interpret 'invest in the whole market' as not really meaning 'invest in the whole US stock and bond market'. Although even that would not be a solution because markets are so interconnected, and 'The Big One' could well be an over-indebted rich country govt debt crisis not just a US govt debt crisis. Putting a portion of portfolio in explicit promises to pay foreign currency (ie bonds, foreign stocks are *not* that, source of a lot of misunderstanding about them from those pro and con IMO) might be one, but not in other over-indebted countries so that's not so easy either*. And of course along scenario paths of the future which look basically like the past, currencies bounce around and you as easily end up subtracting as adding to return, risk without reward. And assuming the problem he points to is very real, which I think it is, nobody knows *when* that's going to start having a serious impact.

I think the OP title 'fear mongering' is not the way to characterize Dalio's view though.

*Germany is significantly less indebted and seems to have a more self correcting political system against over indebtedness than the US, but it's also part of a currency union under threat from less fiscally responsible members. It is tough to find a way around this risk, no doubt about it.

Last edited by JackoC on Thu Sep 13, 2018 10:51 am, edited 1 time in total.

He's a gazillionaire, OK. But I've noticed that there are many of those who, despite their ability to accumulate great wealth, STILL have made many bad predictions...even a whole pattern of bad predictions. Bill Gross comes to mind, offhand. How's Dalio's track record?

Some people including you I assume would ask the question straightforwardly, as in 'is this a person with any credibility?' Dalio? Yes. But the question could and IME often is asked less straightforwardly, as if the already known fact that *nobody* is always right in definitive predictions of the future eliminates the need for any consideration of the future. Again not saying you're saying that. But 'nobody knows nuthin' can definitely be misused, or its validity even challenged IMO. Jack Bogle's view is of an enduring robust American economic system and critically, a political system which eventually does the right thing before it upsets that economic system too greatly. Under that assumption it's reasonable to say it's not worth trying to predict the to and fro within that self correcting system. But such a self correcting system is not as common in human history in general, and not necessarily the future history of the US. I think it's possible now to, strictly apolitically, reasonably doubt if the US *system* has the ability to address the unsustainable fiscal path before it does serious harm.

I guess I ask the question with 2/3 sincerity about Dalio's track record and 1/3 skepticism about the ability of anyone to predict the market, including those who did it well previously. And yeah, isn't most long term investing....which is deferred gratification...a bet that the future will be better than the present? That our system will survive? If you believe otherwise, and many are in that camp, then the action step would be spend everything you have and then some. Millions of Americans (most?) do just that. Deferring gratification makes no sense if you believe what you are deferring will go away.

Some people including you I assume would ask the question straightforwardly, as in 'is this a person with any credibility?' Dalio? Yes. But the question could and IME often is asked less straightforwardly, as if the already known fact that *nobody* is always right in definitive predictions of the future eliminates the need for any consideration of the future.

I guess I ask the question with 2/3 sincerity about Dalio's track record and 1/3 skepticism about the ability of anyone to predict the market, including those who did it well previously. And yeah, isn't most long term investing....which is deferred gratification...a bet that the future will be better than the present? That our system will survive? If you believe otherwise, and many are in that camp, then the action step would be spend everything you have and then some. Millions of Americans (most?) do just that. Deferring gratification makes no sense if you believe what you are deferring will go away.

At some limit yes, investing only makes sense with some degree of confidence about the future. But who is 'we', the US as a well functioning system or 'we' humans with well functioning systems somewhere? Likewise there's a big difference between survive and thrive. Argentina has survived, but fallen a long way from its relative ranking about GDP per capita of say 100 yrs ago, due to chronic political dysfunction. And again you don't have to be Argentina (or countries where revolutions cut stock values 100% never to bounce back) to not be the be-all-end-all place to invest. What's one's starting view? I'm not saying yours is that the US is the be-all-end-all place to invest but more than a few people do seem to think that. And they could continue to be right, of course. But I think it's relevant why other people don't think it's wise to bet everything on that, what are their specific reasons? Dalio is a very smart guy with a good record who has reasons. Again if the question were really 'does Ray Dalio know the future?' we could have a very short thread. No, next topic. But that's not really the question IMO.

maybe I'm a little dense this morning, but what unfunded pensions and health care liabilities is he talking about that would require federal intervention? (I get that many states are underfunded, but what does that have to do with US bonds?

You're not dense, but I think this is what he means, using just Medicare. Medicare is a federal program promising certain benefits to a defined population. Actuaries can estimate the total cost of that promise. Medicare has accepted a future liability (promised health care benefits) without reserving the dollars to cover that liability. Currents bills are paid from current funds (payroll taxes and premiums mainly), not from a reserve (unlike an insurance company which reserves funds for future known liabilities). In the private world, this future obligation would show as a liability on your balance sheet, without an offsetting asset (a reserve fund). So that liability will need to be covered from your P&L and/or by taking on additional debt on your balance sheet to fund that liability as payment is required. Medicare is a federal program and thus this is a US unfunded liability.

There are stars in the Southern sky |
And if ever you decide you should go |
There is a taste of time sweetened honey |
Down the Seven Bridges Road

Ray Dalio has made it his business to assess investment risk. He and lots of smart people around him think about risks 24-7, trying to stay ahead of the curve. So what I would say is that his track record as a Hedge Fund manager is excellent. Doesn't mean that he is right about everything but he is worth listening to.

My take on US Treasuries is that if you believe in Sectoral Balances then the deficits will create built in demand for purchase of Treasuries. It goes something like this, if we import more than we export, then we as a Country are net spenders. That is we consume more than we produce. If the public sector is in deficit, the private sector is in surplus. Amazing how relatively high US Budget deficits are also seeing a relatively high savings rate which is about 7% right now. Classic Keynesianism.

So as the US Government runs up high deficits, we ought to see higher private savings, which we are. Those savings go into US Treasuries. Some economists believe that the National Debt amounts to the private sector savings account. Plus we have to remember that we run trade deficits. So if we have trade deficits and higher private sector savings rates, then the deficit almost "has to" expand. That is if you believe in the Sectoral Balances model. So what would happen is that foreigners would continue net purchases of Treasuries as long as we have trade deficits. If US budget deficits are higher than the trade deficit, you would expect the private sector to be in surplus.

Of course, real life is more complex than this. But sectoral balances give a simple but useful model to give insight as to what is going on. One example of this is the effect of services, there are those who say we have in effect a services surplus with our trading partners.

So I suppose if we went on even a higher borrowing binge that this could devalue the currency over time with inflation. With this model, default isn't the problem but the risk of inflation is. One could say that higher rates of inflation are a form of default. The government services its debts with new dollars that have less and less purchasing power. It is this technical form of default that Dalio is worried about. This could cause the US Dollar to weaken relative to other currencies. Pretty much this is inflating our way out of the debt problem.

Another big factor in all of this is productivity. In theory, if government budget deficits fund productivity improvements in such things as human capital and infrastructure, we sort of grow our way out of the debt problem. That is a whole other discussion.

So you can see why Gold has appeal. If people start losing confidence in their currency, then Gold becomes a safe haven. It is a hedge against the currency devaluation Dalio is talking about.

So what is going to happen? Hard to say. The economy is very complex, many things at work here. I am also a big believer that public confidence is a big factor. If enough people believe that expanding debt is a problem, then it will be a problem as people react to expectations. What we don't want to see is a return to the Stagflation of the 1970's, this might be in the back of Dalio's mind.

Last edited by nedsaid on Thu Sep 13, 2018 8:55 pm, edited 1 time in total.

I think fear mongering implies some sort of outcome that benefits the mongerer. For instance when Peter Schiff gets on the radio and predicts all sorts of meltdowns only gold can buttress against and then mentions Schiff gold. This just seems like someone that is pessimistic about the trajectory of our decision making.

I suppose one could think that Ray Dalio is deliberately talking down the markets so that his hedge fund will benefit. I don't believe this to be the case, he seems like a straight shooter with the integrity to express his views openly without a hidden agenda. He thinks about market risks all the time, his fund has a good track record, and he is worth listening to. Doesn't mean he is right but he certainly knows a lot more about this than I do.

John Bogle expressed doubts about future expected returns from the US Stock Market at a Morningstar Conference back in about 1999. He predicted stock returns over the next decade to be about 2% and for bond returns to be 6-7%. He called bonds the "steal of the century." I don't think Bogle was talking down the markets then and I don't think that Dalio is talking the markets down here. Indeed, Bogle had significant investments in the US Stock Market. He had been about 70% in stocks and depending upon which version of the story you believe, he went down to a 50% allocation or 30%. I think he was thinking aloud about the 30%, probably what he really did was reduce down to 50% stocks and that over a two year period. Hopefully someone will ask him about this.

As far as Dalio, his fund is supposed to be "All Weather", I am sure some scenarios would work better for him than others but he is all about diversification and spreading risks. Don't think he really would benefit by talking down the markets. This could also be looked on unfavorably by regulators. I think we are getting his honest opinions here.

I think fear mongering implies some sort of outcome that benefits the mongerer. For instance when Peter Schiff gets on the radio and predicts all sorts of meltdowns only gold can buttress against and then mentions Schiff gold. This just seems like someone that is pessimistic about the trajectory of our decision making.

I was going to mention Schiff. He's been echoing what Dalio says here, as have many media outlets lately: too much borrowing and debt is gradually weakening the dollar, leading to inflation and an eventual collapse, unlike anything the US has experienced previously. In addition to precious metals (gold, silver, etc.), Schiff recommends buying foreign stocks, essentially not investing in the US. Here's his recent interview with Joe Rogan, where he explains all of these points: https://youtu.be/3u7kDfEtKfs?t=8645

I largely agree with azanon. Dalio is a really bright guy and has a keen understanding of macro economics. I think the issues he articulates are real risks. That doesn't mean I think it necessarily will play out like he describes, but it might, and one should be prepared for such scenarios. Understanding such risks is important when many are saying stocks will always return 10%+ every year and one should be near 100% stocks.

I'm not sure I get the kneejerk reaction by some anytime somebody makes a reasonable but pessimistic macroeconomic observation they are immediately deemed to be a heretic in terms of Boglehead principles.

but I think this is what he means, using just Medicare. Medicare is a federal program promising certain benefits to a defined population.

Ok, I get that he might of been referring Medicare/Medicaid & SS (since he mentioned 'pensions'). But if that is what he meant, why did he not single those out specifically? It just seems to me that is a glaring omission. Perhaps the editor summarized? If so, that is a poor edit job since it really obfuscates the meaning.

but I think this is what he means, using just Medicare. Medicare is a federal program promising certain benefits to a defined population.

Ok, I get that he might of been referring Medicare/Medicaid & SS (since he mentioned 'pensions'). But if that is what he meant, why did he not single those out specifically? It just seems to me that is a glaring omission. Perhaps the editor summarized? If so, that is a poor edit job since it really obfuscates the meaning.

IMHO it's a nitpick either way. If Dalio/editor had said, instead of 'unfunded pension and health-care obligations' rather 'Social Security, federal worker pensions, VA benefits, Medicare, Medicaid, new health entitlements under the ACA and so forth' I'd be nitpicking to say that's too much of a mouthful and too parochially US-centric in terminology, though I think it would have been both . The general term for programs like Social Security in various countries is 'public old age pensions'. And Medicare, Medicaid, ACA features, VA health etc are definitely 'health-care obligations'. So I think you guys are also nitpicking.

As to the technically valid point that 'unfunded pensions' could be confused with the issue of state and local unfunded pension liabilities, which are legally separate issue from federal obligations, I'm not sure that's so fundamentally valid either. If the state problem gets out of control and becomes epidemic among many states, it would be unrealistic IMO to assume it would not end up affecting the federal fiscal problem, general confidence in the US system, economy and/or the $. It's really all one big problem if the state fiscal problem isn't contained. Should we ignore the big increase in indebtedness of Chinese local govts in evaluating whether there's a debt problem in China? I doubt many people would say so. If the US states' unfunded liability problem is contained to where it only leads to outright fiscal disaster in a few states, or none, then it won't be relevant to Dalio's point. But if the federal fiscal path is returned to a sustainable one his worries won't pan out either. Both those depend on the political system being able to deal with such problems before they cause serious harm. The point is fundamentally about his declining confidence that the US political system (federal or state level) can do that. I think he has a point. And the purpose of such a discussion is not to 'prove' what specific future events will happen or not, which is impossible. It's to identify real risks. So even if he did mean to refer to the state problem as part of 'pensions' I don't think it's wrong to think of the overall problem as including the state problem.

I think fear mongering implies some sort of outcome that benefits the mongerer. For instance when Peter Schiff gets on the radio and predicts all sorts of meltdowns only gold can buttress against and then mentions Schiff gold. This just seems like someone that is pessimistic about the trajectory of our decision making.

I was going to mention Schiff. He's been echoing what Dalio says here, as have many media outlets lately: too much borrowing and debt is gradually weakening the dollar, leading to inflation and an eventual collapse, unlike anything the US has experienced previously. In addition to precious metals (gold, silver, etc.), Schiff recommends buying foreign stocks, essentially not investing in the US. Here's his recent interview with Joe Rogan, where he explains all of these points: https://youtu.be/3u7kDfEtKfs?t=8645

This has been Schiff s tune since 2005. He has consistently lost his investors money over the past decade.

I suppose one could think that Ray Dalio is deliberately talking down the markets so that his hedge fund will benefit. I don't believe this to be the case, he seems like a straight shooter with the integrity to express his views openly without a hidden agenda. He thinks about market risks all the time, his fund has a good track record, and he is worth listening to. Doesn't mean he is right but he certainly knows a lot more about this than I do.

John Bogle expressed doubts about future expected returns from the US Stock Market at a Morningstar Conference back in about 1999. He predicted stock returns over the next decade to be about 2% and for bond returns to be 6-7%. He called bonds the "steal of the century."

Not a bad call. If I recall correctly up until what, 2015? US stocks were flat over that time period?

US bonds have done pretty well since 1999 (US Treasury Bonds).

The thing about 2000 was that it was, we hope, a kind of all-time spike in market valuations - the internet euphoria etc. In retrospect bonds were cheap, dirt cheap.

The investor said he is now about 25 percent exposed to the stock market. Tepper called the market "fairly valued" if the U.S. doesn't impose more tariffs on Chinese goods.
"I've taken down my exposure [to equities]," he said. "I'm just not sure what's going to happen with these tariffs. ... Our whole book we probably took down 30 percent at some point, the equity part."

The investor said he is now about 25 percent exposed to the stock market. Tepper called the market "fairly valued" if the U.S. doesn't impose more tariffs on Chinese goods.
"I've taken down my exposure [to equities]," he said. "I'm just not sure what's going to happen with these tariffs. ... Our whole book we probably took down 30 percent at some point, the equity part."

Noting the recent run-up in the benchmark Standard & Poor’s 500 index to fresh record highs while economic growth remains weak and corporate earnings are stagnant - George Soros, Jeffrey Gundlach, Carl Icahn and David Tepper were among billionaire hedge fund investors and money managers who slashed their long equity positions in the second quarter, according to regulatory filings.

All three major U.S. stock indexes ended at all-time highs on Monday, extending their record-setting climb of the past few weeks. The trailing price to earnings ratio of the S&P 500 is now at 20, a level at the high end of its historical range.

Gundlach has been selectively shorting stocks and has kept his overweight exposure in gold and gold miners.

Spot gold prices XAU= rose around 7 percent in the second quarter of 2016 to $1,358.20 an ounce, a two-year high and extension from the 16 percent rise in the first quarter - the strongest quarter in nearly three decades - as expectations for a U.S. interest rate hike faded.

At the time the article was written, the S&P 500 closed at 2184. The S&P 500 today is ~2905, or a whopping a 33% above where it was in mid-August 2016! The gold front month future contract was ~$1336 on 8/15/16 (SOURCE); it is now right around $1200, or ~10% lower vs. 8/15/16. At last as of right now, 2016 was a terrible time to reduce equity exposure or to start shorting the market.

Granted, some of these folks changed their tune after the 2016 presidential election, but the fact remains that, ~2 years after so many big names talked about pulling out of the stock market, their call remains bad. At the time, they didn't know how the next election would go, or how the economy and plethora of geopolitical stressors would evolve, but, then again, none of us do. That's the whole point of not putting much faith/reliance/whatever in the words of other investors who try to time the market. Sadly, we tend to forget all these incorrect bearish calls as time goes on. And the next time a bear market comes, the folks who made a bearish call beforehand get all but memorialized as great investors who say what few others could see coming.

Seems to me the commentary lately on the thread is just devolving to the usual beating of a dead horse: nobody has a crystal ball to tell them exact future outcomes. Not credible people like David Tepper, not clowns like Peter Schiff.

But the Dalio commentary is not a tactical near term 'call'. It's a discussion of a real potential challenge to investors: the unsustainable US fiscal path. A political constituency serious about dealing with this issue might re-emerge before it's too late. Let's hope, because it's hard to invest around eventual uncertainty about the credibility of US debt. But I think it's just head in the sand to ignore it on the excuse 'nobody knows the future'. I wonder if people saying that really treat all risks that way. You don't know the exact outcome, so you pretend the risk doesn't exist?

This risk wasn't present in the whole post war period where US debt as % of GDP was steadily falling (albeit from a rapid run up to higher than now's during WWII). And it took it while after it started rising again in the 1980's to get back to the high % of GDP it's become. But now it's rising across the whole business cycle, not just in downturns, even with a low interest cost per unit debt compared to history. I don't see the rational argument for ignoring this as an eventual challenge to investors. Again identifying risks is not the same as predicting exact outcomes. The posts bringing up wrong tactical calls by well known prognosticators aren't relevant to refuting Dalio, IMO.

It might be more like peterinjapan's comment "Bogleheads get grouchy when you imply that their future returns will be impacted in any negative way"

Seems to me the commentary lately on the thread is just devolving to the usual beating of a dead horse: nobody has a crystal ball to tell them exact future outcomes. Not credible people like David Tepper, not clowns like Peter Schiff.

But the Dalio commentary is not a tactical near term 'call'. It's a discussion of a real potential challenge to investors: the unsustainable US fiscal path. A political constituency serious about dealing with this issue might re-emerge before it's too late. Let's hope, because it's hard to invest around eventual uncertainty about the credibility of US debt. But I think it's just head in the sand to ignore it on the excuse 'nobody knows the future'. I wonder if people saying that really treat all risks that way. You don't know the exact outcome, so you pretend the risk doesn't exist?

There’s also a limit to the extent some of these issues can be deliberated here without running afoul of forum rules.

I suppose one could think that Ray Dalio is deliberately talking down the markets so that his hedge fund will benefit. I don't believe this to be the case, he seems like a straight shooter with the integrity to express his views openly without a hidden agenda. He thinks about market risks all the time, his fund has a good track record, and he is worth listening to. Doesn't mean he is right but he certainly knows a lot more about this than I do.

John Bogle expressed doubts about future expected returns from the US Stock Market at a Morningstar Conference back in about 1999. He predicted stock returns over the next decade to be about 2% and for bond returns to be 6-7%. He called bonds the "steal of the century."

Not a bad call. If I recall correctly up until what, 2015? US stocks were flat over that time period?

US bonds have done pretty well since 1999 (US Treasury Bonds).

The thing about 2000 was that it was, we hope, a kind of all-time spike in market valuations - the internet euphoria etc. In retrospect bonds were cheap, dirt cheap.

Sigh, my forward looking crystal ball is not at all as clear .

My crystal ball is notoriously cloudy as well. I have been pounding the table for Large Growth Value here in the United States but the markets stubbornly refuse to listen. We just do not know the future.

I suppose one could think that Ray Dalio is deliberately talking down the markets so that his hedge fund will benefit. I don't believe this to be the case, he seems like a straight shooter with the integrity to express his views openly without a hidden agenda. He thinks about market risks all the time, his fund has a good track record, and he is worth listening to. Doesn't mean he is right but he certainly knows a lot more about this than I do.

John Bogle expressed doubts about future expected returns from the US Stock Market at a Morningstar Conference back in about 1999. He predicted stock returns over the next decade to be about 2% and for bond returns to be 6-7%. He called bonds the "steal of the century."

Not a bad call. If I recall correctly up until what, 2015? US stocks were flat over that time period?

US bonds have done pretty well since 1999 (US Treasury Bonds).

The thing about 2000 was that it was, we hope, a kind of all-time spike in market valuations - the internet euphoria etc. In retrospect bonds were cheap, dirt cheap.

Sigh, my forward looking crystal ball is not at all as clear .

My crystal ball is notoriously cloudy as well. I have been pounding the table for Large Growth Value here in the United States but the markets stubbornly refuse to listen. We just do not know the future.

If you can't beat 'em, become a trend follower.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Fear mongering: "The action of deliberately arousing public fear or alarm about a particular issue."

That's exactly what Dalio is doing, even if you agree with him.

Last edited by willthrill81 on Sat Sep 15, 2018 3:44 pm, edited 1 time in total.

“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

It’s interesting that some of his proposed bad scenarios are specially toxic to BogleHeads principles:

Bonds are for safety
No need for currency diversification away from dollar

It won’t just be a debt problem this time around, he said, but rather a story about unfunded pension and health-care obligations. To address that looming crisis, the U.S. will need to ramp up issuance of U.S. Treasuries.

We have to sell a lot of Treasury bonds, and we as Americans won’t be able to buy all those Treasury bonds,” Dalio said. That means foreign investors will have to step up. And they probably would, as long as the dollar remains strong. Otherwise, Treasury’s dollar-denominated interest payments to buyers in China, Europe and Japan will be worth less and less.

The Federal Reserve at that point will have to print more money to make up for the deficit, have to monetize more and that’ll cause a depreciation in the value of the dollar,” he said. Pressed by interviewer Erik Schatzker, he said, “You easily could have a 30 percent depreciation in the dollar through that period of time.

We have the privileged position of being able to borrow in our own currency because we have the world's leading reserve currency. We are risking that by our finances — in other words, borrowing too much

I have read the article and my comments are as follows:
1. The article is not fearmongering. Dalio describes a plausible scenario harmful to the U.S. economy and provides reasons for its occurrence. Risk assessment and construction of harmful scenarios in the form of "pre-mortems" are tools of prudent decision making.
2. Nothing in Dalio's scenario or the article itself is "toxic" to the Bogleheads principles. The vast majority of Bogleheads are U.S.-based and pay U.S. dollars for their investments in the Treasuries and other assets.
3. Currency speculation is not a part of the Bogleheads philosophy. The article does not encourage currency speculation in preparation to the scenario described by Dalio.

Victoria

WINNER of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

Fear mongering: "The action of deliberately arousing public fear or alarm about a particular issue."

That's exactly what Dalio is doing, even if you agree with him.

Except he is not. He's just being factual. That's not fear mongering at all. He is telling things as he sees it and has given investment advice over the years so that people can protect themselves, precisely so that they don't have to be fearful or alarmed.

One other defense for Ray - he's a student of history and is well known for his analysis of debt cycles (there's a youtube on this, in addition to his recent book). I don't agree that it's non-boglehead to try to study and learn from history, and take that into consideration with your investing. That strikes me as a wise thing to do. W. Bernstein certainly finds merit in doing so.

I also think it is wise to seek out and evaluate differing points of view. If my belief system can't stand up to new verifiable information, where might the problem be?

I watched the actual interview being quoted (link below) and thought it was pretty balanced and Ray's actionable advice was very “boglehead“-ish as can be: don't actively manage/behave counter to your intuition. He ends his spiel saying that “Balance is key”.

Everything he states, he relates back to his understanding of financial history and debt cycles. If his assessment that we are looking at a reincarnation of 1937, as a follow up to the Great Depression in the next 18-24 months, it sounds like a reasonable assessment to me.

With all of that said, the article and the video didn't really do anything to change my outlook on things. Only validate them. My current allocation is 65/30/5.